by Natig Aliyev

The history of Azerbaijan
and its capital Baku is indissolubly connected with oil from
the earliest days. In ancient manuscripts, written prior to the
time of Christ, references are made to oil extraction from wells
and its utilization in life, construction, medicine and the military.
Baku is referred to in these documents.

Ancient Knowledge of
Oil in Baku

More than 2600 years ago, people
already knew the value of this "fire water." During
the siege of Persia in 331 BC, Alexander the Great's tent was
lit by fire vessels made of clay and filled with oil taken from
inhabitants living near the Caspian seaside. Oil was one of the
elements of the famous "Greek Fire" used by the Arabs
as an incendiary mixture. It was used by the Greeks to burn their
enemy's navy - an idea that many cities and fortresses would
use themselves later on in defense.

The first reliable information about oil extraction on the Absheron
Peninsula, where Baku is located, dates to the 7th and 8th centuries.
At that time, the oil was taken primarily by very primitive or
natural ways. In the 10th century, the Arabian traveler, Marudee,
reported that both white and black oil were being extracted naturally
from Baku.

Oil and the Zoroastrian
Religion

The Absheron Peninsula was famous
for its eternal fires - the underground fire gases rising to
the earth's surface. Zoroaster established fire worshipping and
Baku became one of their most sacred sanctuaries. People from
throughout the world wished to visit and bow before the eternal
flame. In the Baku region, there were three cult hearths or "Temples
of Fire" - one in Surakhany, another at Pirallahy Island,
and the third at Shubanu Mountain.

Commercial Development

The oil naturally promoted commercial
development and ties with neighbors to the East, West, North
and South. Carvans of camels loaded with vessels of oil exported
Baku oil to other countries. To this day, the remains of two
Carvansarays still exist, the Bukharian and Indian, providing
evidence of the wide commerce with countries of Middle Asia and
India.

As the demand for oil increased, people looked for new ways to
extract the oil. It was in Azerbaijan that the first oil extraction
took place. In Balakhany, one of the districts of Baku, there
is a 35 meters deep well with stone at the bottom upon which
is carved that it was dug out in 1594 by a skilled workman named
Mamed Nuroghlu . A Russian scientist Gemlin who visited Baku
in 1771 and mine-engineer Voscoboynikov in 1827 researched and
described these wells and their technology. By the end of the
19th century, Baku's fame as the "Black Gold Capital"
had spread throughout of the world.

In most oil-extracting countries, the oil-industry dates from
the moment mechanical boring equipment begins operations. The
first oil well in the world was drilled in Baku in 1847 at Bibi-Eybat
oil field under the direction and initiation of Russian Engineer
Semenov.

Baku - Black Gold Capital
of the World

In 1850, oil extraction in the
world had reached about 300 tons. By 1881, it had grown to 4.4
million tons. By 1891, 22.5 million tons of which 9.5 million
tons came from the US and 11.4 million tons from Russia of which
95% was extracted from Azerbaijan.

By the end of the 19th century, Baku's fame as the "Black
Gold Capital" spread throughout of the world. Skilled workers
and specialists flocked to Baku. By 1900 Baku had more than 3,000
oil wells of which 2,000 of them were producing oil at industrial
levels.

The Nobel Brothers
and Oil

In the history of Baku oil,
it is impossible not to note the investment of foreign companies,
especially the Nobel family. Robert Nobel was the first of the
Noels to understand the future and success of the oil-industry
in Baku. He convinced his brother Ludwig to invest in oil extraction.
In 1873, they established the Nobel Brothers Oil Extracting Partnership.

Thanks to his skillful leadership and personal qualities as an
organizer, Ludwig, a talented engineer, developed many inventions
that helped modernize the technology related to oil production.

The Nobel Brothers Company, for example, bought the first tanker
in the Caspian Sea, in order to reduce transport expenses. The
ship, which they called Zoroaster, was built according to drafts
made by Ludwig Nobel in Sweden at the Motall Shipbuilding Factory
in 1877. Because of the success of that first tanker, the Nobel
Brothers built an entire fleet of tankers, giving names to the
ships such as Moses, Spinoza, and Darwin. The tankers increased
the turnover of goods to such an extent that by 1890, Baku had
become the busiest port in the world.

The next technique they used to modernize their production of
oil was to introduction of black oil for heating the ships engines.
Ludwig Nobel invented several kinds of black mineral oil pulverizing
systems for better burning. They were successfully installed
in his own ships to heat the boilers, and resulting in considerable
profit for their company.

The Nobel Brothers also were first to introduce railway tanks
for oil transportation. In 1878 they built a pipeline which reduced
the expenses of transportation by five times and paid for itself
within a single year.

Great changes were introduced in the area of oil storage. Taking
into account of the chaotic oil storage of the ground pits, vessels
and lakes where great quantities of oil evaporated or simply
penetrated back into the ground, the Nobel Brothers started to
use iron reservoirs for oil storage and soon there were huge
tank parks not only in Baku but other cities as well.

All this modernization allowed the Nobel Brothers to take the
lead in the oil business by 1900 and to gain tremendous profit
during the 47 years of their partnership in Azerbaijan.

The Rothschild Company and Shell lead by Samuel Markus were also
involved in oil production in Baku. More than 50% of the oil
extraction and 75% of the oil production commerce were held by
these three foreign companies.

Oil turned Baku into a center of world oil commerce and enabled
it to exert an incredible influence on the entire Caucasian economic
development. In 1897-1907, the largest pipeline in the world
at that time was built from Baku to Batumi on the Black Sea Coast,
a distance of 883 kilometers. The diameter of the pipeline was
200 mm and was equipped with 16 pumping stations.

Prior to that , in 1883 a railway was laid from Baku to Tbilisi,
enabling the oil to be transported by trains. In 1880 a 26 kilometer
railway was built connecting Baku to some of its oil field -
this was the first of its kind.

Of course there was a flurry of bank activity and various financial
societies and organization were created. In 1884, the oil barons
in Baku established their own organization, the Oil Extractors
Congress Council for the discussion of oil business. They had
their own magazine, Oil Business, a library, school, hospital,
and pharmacy. For 6 years, the Council of Oil Extractors Congress
was directed by Ludwig Nobel (1884-1890).

The oil industry greatly influenced the architectural appearance
of Baku as a city. Administrative, social and municipal institutions
were established which, in turn, made decisions about the city's
illumination, roads, streets, buildings, eventual telephone stations,
and horse-drawn trolleys. Gardens and parks were developed and
hotels, casinos and beautiful stores were built.

The local oil barons began competing with each other, trying
to distinguish themselves by building luxurious majestic palaces
as residences. Each one differing from the other in style and
architecture but each one exceptionally beautiful. Evidence remains
today of the influence and philanthropy in architecture, art,
science and other forms of philanthropy, the best known of whom
are Zeynalabdin Taghiyev, Shamsi Asadullayev, and Musa Naghiyev.
(See Article on "Legacy of the Oil Barons" by Fuad
Akhundov).

Today, Sumgait has one of the largest chemical industries dealing
mostly with oil-related products. Factories there supply great
amount of chemicals not only to Azerbaijan but to many of the
neighboring countries as well. Ali-Bayramli, another industrial
town also was developed because of oil, as was the city, Naftalan,
where a very unusual kind of oil called "white oil"
is produced which is unique to the entire world as it has healing
power for specific diseases. People from all over the world come
to the sanitarium there to benefit from its curative powers.

Oil and the International
Scene Today

Today we are beginning to take
our first steps into the world market economy. As oil is our
richest commodity, we want it benefit and work for the good of
our nation. We used to believe that much of the oil was onshore
but now we've come to realize that much of it is also offshore
so we are developing and exploring new oil wells offshore. It's
not new to say that the potential is great. For instance, Azerbaijan
has 350 ships that serve the oil economy alone plus tankers,
cranes and ships which build submarine pipelines.

Azerbaijan's Potential

Today, the total amount of oil
that could be produced is a billion tons. This does not include
areas in the sea which haven't as yet been developed which alone
is sufficient to revive our economy for scores of years.

Our policy today is to attract foreign organization and companies
to get involved with us. We want to use their financial support
and exploit the oil industry together making it beneficial for
us both.
In the future as we increase oil production, we won't be able
to refine all of it by ourselves. We'll have to export it out
of Azerbaijan as raw material via pipelines. We are investigating
a variety of options especially those that link us to the Black
and Mediterranean Seas.

Because oil economy has an immense infrastructure, many service
industries will be involved. This means houses, roads, railroads,
hotels, telecommunications, warehouses, have to be built. A handful
of companies cannot do the job, hundreds will be needed to relate
to the petrochemical, chemical , machinery producing factories,
etc. Contracts will be selected on the basis of competitive bid
from companies from all over the world.

We are now in the process of working on the Consortium Oil Contract.
Recently, we had a meeting with President Heydar Aliyev and provided
him with a summary of the history of the relationships we've
had with Western companies these past three years. He issued
a decree allowing us to continue and accomplish the goals of
this project. We have hired finance and legal consultants from
well-known companies and are presently involved with working
out the conditions and details related to the Contract.

Value of the Upcoming
Exhibition and Conference

Exhibitions, and business conferences
that are held in Baku play a significant role in this project.
It demonstrates to the world community that Azerbaijan is once
again an oil country. Visitors who attend the exhibition and
conference get a chance to see for themselves the potential in
our country, the conditions that exist here and the political
climate. We are looking forward to a great exhibition at The
International Caspian Oil and Gas Conference and Exhibition in
late May.

Natig Aliyev is President of SOCAR (State Oil Company of Azerbaijan
Republic) and will be giving a Keynote Address at the upcoming
International Caspian Oil and Gas Exhibition in Baku in May.
He received his doctorate in 1974 and has written some 40 scientific
articles related to oil.